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Wealth Inequality vs Income Inequality

The Yale Economist and Nobel Prize winner, Robert Shiller, has an article in today’s New York Times, “Better Insurance Against Inequality”, proposing that “taxes should be indexed to income inequality so that they automatically become more progressive – meaning that the marginal tax rate for the highest income people will rise – if income equality becomes much worse.”We do know, of course, that income inequality is steadily increasing in the U.S. It is in fact essentially folklore that the top 1% of Americans is collecting a larger and larger share of the national income. Furthermore the French economist, Thomas Piketty, has recently shown that there is also “a relentless widening of disparity in wealth”.
Our democratic political system will surely respond in some way to this increasing gap between the rich and the poor. It is important to our future wellbeing to respond in a constructive manner. Today’s top tax rate of 39.6% is already very high and Mr. Shiller admits that the top rate would have to rise well over 75% in his plan.
Our biggest economic problem today is a stagnant economy. We badly need faster economic growth, in order to put people back to work and to bring in more revenue to shrink the deficit. Today what we need is lower tax rates, to put more money in the hands of people who will spend it, including potential entrepreneurs who will invest it in new businesses. Raising tax rates to address rising income inequality is therefore self-defeating as an economic strategy.
Rather let’s tax people’s financial assets after they have earned their money. A 1% wealth tax with a relatively high $10,000,000 personal exemption would bring in approximately $200 billion per year. $200 billion per year would enable us to pay down our deficit at a much faster rate as well as having a lot left over to begin an extensive infrastructure renewal program (for example)!

2 thoughts on “Wealth Inequality vs Income Inequality”

The top tax rate while we struggled to bring down a deficit from WW II which as a percent of GDP was not a lot higher than today were:
1946-63: 91%
1964-77: 77%
1978-81: 70%
1982-86: 50% – – Reagan
1987: 38.5% – – Reagan
1985-90: 28% – – Reagan
1991-92: 31%
1993-00: 39.6%
2001: 39.1%
2002: 35.6
2003-12: 35%
2013: 39.6%
Most of the high tax years were periods of high investment by industry.

I really don’t understand the relationship between tax rates and investment? I suspect that is another myth from the super-rich. If tax rates go up the rich still have more money than they can consume, do you think they will just put that money under a mattress?

Here’s are my premises:
1. Our biggest economic problem today is a stagnant economy and not enough jobs.
2. Most (i.e.average income) Americans will spend more money if they have lower taxes.
3. Eliminating deductions, to balance off lowering tax rates, hurts only the wealthy.
4. Government spending greatly exceeds revenue and this problem is getting worse.
5. It’s going to be very hard politically to cut either social welfare or entitlement spending.
6. Both income inequality and wealth inequality are increasing significantly.
Conclusion:
Let’s lower tax rates to boost the economy and offset these lower rates by eliminating deductions which will mainly affect the wealthy. Let’s also tax the accumulated assets of the very wealthy with a low percentage annual tax in order to raise additional revenue to pay down the deficit as well as spending on vital needs such as infrastructure improvement.